Amendments in Assessment Order
Introduction
The assessment of a person shall be required to be modified if, due to a change in certain circumstances, his income is required to be recomputed. The rectification in the assessment order is required, as disallowances or deductions in the hands of a person in one year may affect the income or deductions of that person or any other person in the same or subsequent years.
1. Rectification in the assessment of a partner [Section 288(1) (Table: S. No. 1)]
1.1 Why is rectification required?
Where the assessment of a partner of the firm is completed but it is subsequently found that any remuneration to partner is not deductible under Section 35(e) from the taxable profits of the partnership firm, the Assessing Officer may amend the assessment order of the partner with a view to adjusting the income of the partner to the extent of the amount not so deductible.
The rectification in the assessment of the partner is done if remuneration is not found deductible from the taxable income of the partnership firm, after:
(a) Assessment or Re-assessment of the firm
(b) Rectification of any mistake apparent from the record
(c) An order passed by an appellate authority in pursuance of an appeal
(d) Revision orderby tax authorities
1.2 Time limit for rectification
The rectification order can be passed at any time before expiry of 4 years from the end of the financial year in which the final order was passed in respect of the firm.
2. Rectification in assessment of members of AOP/BOI [Section 288(1) (Table: S. No. 2)]
2.1 Why is rectification required?
Where assessment of a member of an AOP or BOI is completed, but it is subsequently found that the share of income in AOP or BOI has not been included in the assessment of such member or the share included was not correct, the Assessing Officer may amend the assessment order of such member for the purpose of such inclusion or correction.
The rectification in the assessment of the member is done if the share of income in AOP or BOI is not found to be included in the assessment of the member, after:
(a) Assessment or Re-assessment of AOP or BOI
(b) Rectification of any mistake apparent from the record
(c) An order passed by an appellate authority in pursuance of an appeal
(d) Revision order by tax authorities
2.2 Time limit for rectification
The Assessing Officer is required to amend the order within a period of 4 years from the end of the financial year in which the order was passed in the case of AOP or BOI.
3. Rectification on re-computation of loss or depreciation [Section 288(1) (Table: S. No. 3)]
3.1 Why is rectification required?
Where any loss or depreciation is re-computed under re-assessment proceedings, and accordingly, it becomes necessary to recompute the total income of the assessee for the succeeding years to which such loss or depreciation has been carried forward and set off, the Assessing Officer is required to recompute the total income in respect of such year or years.
The rectification is done if depreciation or the following losses are recomputed as a result of re-assessment proceedings:
(a) Capital losses to be carried forward or set off under Section 111
(b) Business loss to be carried forward or set off under Section 112
(c) Speculative loss to be carried forward or set off under Section 113
(d) Other losses to be carried forward or set off under Section 115A.
3.2 Time Limit for rectification
The rectification may be made within 4 years from the end of the financial year in which the re-assessment order was passed.
4. Rectification on conversion of capital asset into stock [Section 288(1) (Table: S. No. 4)]
4.1 Why is rectification required?
See also: Transfer of capital asset between holding & subsidiary cos.
Where a capital asset is transferred by a parent company to its wholly owned subsidiary (or vice-versa), it will not be treated as a transfer if the transferee is an Indian company. However, if the transferee company converts the capital asset into stock-in-trade or the parent company ceases to hold 100% shareholding of the subsidiary company within a period of 8 years from the date of transfer, the exemption from capital gains tax in respect of such transfer shall be withdrawn.
When an exemption is withdrawn, the amount of capital gain exempted earlier is deemed to be the income of the transferor company chargeable under the head ‘Capital Gain’ in the year in which such transfer took place.
4.2 Time limit for rectification
The Assessing Officer is required to make rectification within a period of 4 years from the end of the financial year in which the relevant asset was converted into stock-in-trade or the holding company ceased to hold the entire share capital of the subsidiary company.
5. Rectification if investment made in an extended period [Section 288(1) (Table: S. No. 5)]
5.1 Why is rectification required?
Capital gains arising from the transfer of an asset (‘original asset’) get the exemptions under Section 82, Section 83, Section 84, Section 85 and Section 86 if the assessee makes the investment in prescribed assets within the given time limit. Where the transfer of the original asset is by way of compulsory acquisition under any law and the amount of compensation awarded for such acquisition is not received by the assessee on the date of such transfer, Section 89 provides that the period for acquiring the new asset by the assessee shall be reckoned from the date of receipt of such compensation.
Where capital gains from the transfer of original asset are charged to tax in the year of transfer itself, but the assessee makes the investment in the new asset within the extended period allowed under Section 89, the assessing officer is required to amend the assessment order to exclude the amount of capital gain from the total income of the assessee for that year.
5.2 Time limit for rectification
The assessing officer is required to make an amendment within a period of 4 years from the end of the financial year in which the assessee received compensation.
6. Rectification when exports proceeds received in foreign exchange [Section 288(1) (Table: S. No. 6)]
6.1 Why is rectification required?
Where assessee was not allowed deduction under Sections 144 due to the reason that the income was not received (or brought) in convertible foreign exchange in India but subsequently such income is received/brought in India, the Assessing Officer is required to amend the assessment order so as to allow such deductions in respect of the income which has been so received or brought into India, as the case may be.
6.2 Time limit for rectification
The Assessing Officer is required to make rectification within a period of 4 years from the end of the financial year in which the income or part thereof has been received or brought into India.
7. Rectification based on settlement of overseas tax dispute [Section 288(1) (Table: S. No. 7)]
7.1 Why is rectification required?
Where at the time of processing of return, the assessee was not allowed the credit of taxes paid outside India as it was under dispute and subsequently such dispute was settled, the Assessing Officer shall amend the assessment order and allow the credit of such tax, if assessee furnishes following documents within 6 months from the end of the month in which such dispute was settled:
(a) Evidence of such a settlement
(b) Evidence of payment of tax
(c) Undertaking that credit for such amount has not been and shall not be claimed directly and indirectly in any other tax year.
The credit of such tax shall be allowed in that year in which such income was offered to tax in India.
7.2 Time limit for rectification
The rectification order is required to be passed within 6 months from the end of the month in which the relevant documents are furnished by the assessee.
8. Rectification where the full value of consideration is changed [Section 288(1) (Table: S. No. 8)]
8.1 Why is rectification required?
As per Section 78, where consideration received or accruing on account of the transfer of land or building is less than the value adopted by the authority for the purposes of payment of stamp duty, the value so adopted is deemed to be the full value of consideration received or accruing for the purposes of computing capital gain.
However, where such value is subsequently revised in any appeal, revision or reference, the Assessing Officer shall amend the assessment order so as to compute the capital gain by taking the full value of the consideration to be the value as so revised in such appeal, revision or reference.
8.2 Time limit for rectification
The Assessing Officer is required to make an amendment within a period of 4 years from the end of the financial year in which the order revising the value was passed in that appeal, revision, or reference.
9. Rectification where the amount of compensation is changed [Section 288(1) (Table: S. No. 9)]
9.1 Why is rectification required?
Where, in case of compulsory acquisition of a capital asset by the government, the owner of the capital asset is not satisfied with the amount of compensation, he can approach the judicial authorities to enhance it. When compensation is enhanced, the capital gains shall be computed separately for the enhanced compensation and shall be taxable on a receipt basis.
Where the amount of compensation is subsequently reduced by the judicial authorities, the Assessing Officer shall amend the assessment order so as to compute the capital gain by taking the compensation as so reduced by the judicial authorities to be the full value of consideration.
9.2 Time limit for rectification
The Assessing Officer is required to make an amendment within a period of 4 years from the end of the financial year in which the judicial authorities passed the order reducing such compensation.
10. Rectification where the amount of deduction is withdrawn [Section 288(1) (Table: S. No. 10)]
10.1 Why is rectification required?
Where the assessee was allowed a deduction in respect of royalty under Section 152 while computing his total income but subsequently by an order of Controller or the High Court under the Patent Act, 1970, the patent was revoked or his name was removed from the patents register as patentee, the deduction which was allowed to the assessee shall be deemed to have been allowed wrongly. Accordingly, the Assessing Officer is required to rectify the assessment order and recompute the total income of the assessee of the relevant tax year.
10.2 Time limit for rectification
The Assessing Officer is required to make an amendment within a period of 4 years from the end of the financial year in which the order of the Controller or High Court was passed.
11. Rectification of TDS credit in respect of the income disclosed in the return of income filed in earlier years [Section 288(1) (Table: S. No. 11)]
11.1 Why is rectification required?
Where an income has been reported in an income tax return filed under Section 263 for the specific tax year, but the tax was withheld by the deductor and paid to the government in a subsequent financial year.
11.2 Time limit for rectification
The Assessing Officer is required to make an amendment within a period of 4 years from the financial year in which the tax was withheld.
11.3 Form for rectification
Rule 178 provides that the assessee shall be required to furnish an application in Form No. 102 to the prescribed income tax authority
12. Recomputation of the total income of 2 subsequent years in conformity with the ALP determined by TPO [Section 288(2)]
12.1 Why is rectification required?
Where the Transfer Pricing Officer determines the arm’s length price under Section 166(6) for a tax year (Year 1) and validates the assessee’s option under Section 166(9) for 2 consecutive tax years (Year 2 and Year 3), the Assessing Officer shall recompute the assessee"s total income for those 2 years by amending the order of assessment or any intimation or deemed intimation under section 270(1).
12.2 Time limit for rectification
(a) If assessment, intimation or deemed intimation of Year 2 and Year 3 is done:
The Assessing Officer is required to make an amendment within 3 months from the end of the month in which Year 1’s assessment is completed.
(b) If assessment, intimation or deemed intimation of Year 2 and Year 3 is not done within the 3 months:
The Assessing Officer is required to make an amendment within 3 months from the end of the month in which the assessment, intimation or deemed intimation for Year 2/3 is done.
12.3 Form for rectification
The form is yet to be notified by the CBDT.
13. Faceless Proceedings
Section 532 empowers the Central government to make a scheme for any purpose of the Act so as to impart greater efficiency, transparency and accountability by:
(a) Eliminating the interface with the assessee or any other person to the extent technologically feasible.
(b) Optimising utilisation of the resources through economies of scale and functional specialisation.
This provision also provides that where a scheme has been notified under the Income-tax Act 1961, the Central Government may amend or modify the said scheme. This indicates that the schemes notified under the ITA 1961 will continue to apply, which is also in line with the repeal and saving provision of Section 536(2)(j) that provides that any scheme issued under any provision of the repealed Income-tax Act shall, so far as it is not inconsistent with the corresponding provisions of this Act, be deemed to have been issued under the corresponding provision of this Act and shall continue in force accordingly.
Under the ITA 1961, the CBDT has not notified any scheme for rectification of mistakes in a faceless manner.
14. Appeal against rectification order
Assessee aggrieved by a rectification order passed by the competent authority having the effect of enhancing the assessment or reducing the refund or an order refusing to allow a claim made by the assessee can prefer an appeal before the JCIT(A) or CIT(A) or make an application for revision. However, the appeal cannot be preferred against an assessment order passed on invocation of GAAR.
References
Director General of Income-tax (Systems), or the person authorised by him.
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.